ECB Plans Split Review to Keep Inflation Goal at Core of Debate

(Bloomberg) --

European Central Bank officials deciding how to review their monetary policy plan a two-part approach that separates price-stability targeting from other aims, according to people familiar with the matter.

One assessment will focus on the ECB’s performance since the last such exercise in 2003, revisiting its framework, instruments and the inflation measures it tracks, while the other addresses policies such as financial stability, climate and communication, the people said. They declined to be identified because their discussions are confidential.

Such a division of labor allows policy makers to keep the core matter of reviving inflation -- to hit their primary mandate of price stability -- distinct from secondary goals such as climate change. For newly installed ECB chief Christine Lagarde, that amounts to a resetting of ambitions after she initially suggested environmental objectives should be much more central to her institution’s policies.

The Governing Council has yet to sign off on the plan, which could yet change, the people said. An ECB spokesman declined to comment.

Keeping the inflation-target discussion separate would reassure central-bank purists who reckon climate policies are for politicians to pursue. But it could also be simply practical, accommodating the sheer breadth of subjects that officials want to broach in their first assessment of monetary policy strategy for a generation.

Lagarde is poised to formally announce the assessment this week, in what will amount to the first signature initiative of her presidency. She and her colleagues can already look for guidance to the U.S. Federal Reserve, which is conducting a similar exercise and expects to release the results this year.

Policy makers will sign off on the review at their formal meeting on Thursday. Discussions on the matter kicked off on Wednesday, and their meetings normally continue at a private dinner between officials that can extend late into the night.

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